Commission looks into licensing and distribution practices

Commission looks into licensing and distribution practices

23.06.2017

On June 14, 2017, the European Commission (“Commission”) announced the opening of three formal investigations into the licensing- and distribution practices of Nike (FC Barcelona), Sanrio (Hello Kitty), and Universal Studios (Minions / Despicable Me).

The Commission is investigating whether licensors Nike, Sanrio, and Universal Studios violated European competition law by imposing restrictions on their licensees regarding cross-border and online sales of their licensees’ merchandising products.

Formal investigations into the e-commerce sector
The Commission has recently completed its sector inquiry into e-commerce in the EU and published its results. These results show that there is a need for improvement from a competition law perspective.

Agreements between suppliers and distributors (distribution agreements) can restrict competition when the supplier imposes limitations on cross-border sales of its distributors or fixes resale prices. Similarly, geo-blocking – when consumers cannot access certain goods or services based on their geographical location – can also distort competition.

The Commission fears that certain distribution practices and geo-blocking have adverse effects on consumer choice and prices in the e-commerce sector. Therefore, the Commission is addressing these issues: the number of ongoing investigations into the distribution practices of companies following the sector inquiry into e-commerce is already six.

Earlier this month, the Commission launched a formal investigation into the distribution system of clothing company Guess. The Commission suspects that Guess prohibits its distributors from selling cross-border to consumers within the EU. In addition, the Commission also opened two formal investigations in February 2017: one into the distribution of consumer electronics (Asus, Denon & Marantz, Philips, and Pioneer) and one into the distribution of video games (Valve Corporation, Bandai Namco, Capcom, Focus Home, Koch media, and ZeniMax).

National competition authorities in the EU
National competition authorities share the Commission’s concerns about the effects of vertical restrictions on competition.
For example, in January 2017, the German competition authority issued guidelines on the prohibition of vertical price fixing in the food retail sector. It also investigated a range of cases in which vertical restrictions were addressed. This includes the LEGO case of January 2016 (resale price maintenance) and the furniture case of January 2017 (also resale price maintenance).

The Belgian competition authority imposed a fine in the baker’s yeast sector for vertical price fixing in March 2017. In February 2017, the French competition authority addressed vertical price fixing on the market for petanque balls. In June 2016, the British competition authority published an open letter to suppliers and resellers to raise awareness of the ban on vertical pricing.

The Dutch Authority for Consumers & Markets (ACM) however, is strikingly quiet when it comes to investigating vertical restraints. Despite that ACM already indicated in April 2015 that it would prioritize investigations into (vertical) agreements that negatively impact consumers, it seems that ACM has not encountered any such agreements to date. Nevertheless, the Commission’s sector inquiry into e-commerce shows that vertical restraints that may be contrary to European competition law are widespread throughout the EU. It thus seems unlikely that there are no vertical agreements in the Netherlands worthy of ACM’s consideration.

Conclusion
The recently opened investigations emphasize that the Commission values efficient and fair cross-border sales in the EU. This applies to both traditional sales (bricks) and sales over the internet (clicks). Although the activity of ACM on the field of vertical agreements is limited compared to that of the Commission and national competition authorities in the EU, this only seems to be a matter of time.

It is therefore important that companies are well informed about possible restrictions in distribution and licensing agreements that may be incompatible with competition law. This applies to all companies involved: suppliers, resellers, licensors, and licensees.